DTN: Profits boost farmers’ confidence

But numbers slip when looking over coming year

January 8, 2012

OMAHA - With the 2011 harvest picture complete, U.S. farmers and agribusinesses indicated they were more positive about ag prospects in December than they were in September.

The Agriculture Confidence Index, released Monday by DTN/Progressive Farmer, showed that the confidence index was at 134 in December, an increase from 128 in December. Numbers greater than 100 mean that producers are more positive than the baseline set by the original survey in April 2010, while numbers below 100 indicate producers are more negative than in April 2010.

The lower September numbers were the result of producers not knowing how a series of adverse weather patterns and diseases affected yields.

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-Messenger file photoFor most producers, the 2011 harvest came in better than feared after a series of yield-robbing pests, diseases and weather patterns. With grain markets recovering in late-December to present, farmers indicate their confidence is up in the short term, but slips a few points when looking over the next 12 months.

The U.S. harvest was not a bin-buster, but was satisfying as a whole. With favorable weather keeping drying costs at a minimum, or as in much of the Farm News coverage area, non-existent, farm incomes were preserved, even if some yield loss was experienced.

However, confidence in the next 12 months was lower in December, than it was in December 2010, Smith said. In 2010, 77.6 percent of farmers said they thought the next 12 months would be better or the same. In December 2011, that number slipped to 64.2 percent.

Linda Smith, who edited DTN's index report, said she thinks that in December 2010, grain prices were still rising, while in December 2011 commodity prices were falling. Since then, corn and soybean markets have seen significant recovery as reports of dry weather in South America may cut corn yields, delay soybean planting, as well as more non-commercial buyers getting back into the market.

"In general, farmers are cautious," Smith said. "Specifically, the last couple of years have been very good, and they can't see how it can get better." Therefore, Smith said, she thinks survey respondents said conditions would be a little worse or the same a year from now.

"It's pretty hard for producers to believe that the good times they've enjoyed over the past couple of years will continue indefinitely," said Robert Hill, principal of Caledonia Solutions in North Oaks, Minn., which conducted the telephone survey. "Someday, we will talk about these as the good old days in terms of profitability."

According to Mindy Williamson, communications director for the Iowa Corn Growers Association, Monday's report coincides with a similar survey ICGA conducted in 2011.

"It looks like there's a trend of farmers being more optimistic," Williamson said. She said ICGA's survey in 2000 showed 34 percent of those surveyed thought the next 12 months would be the same or better. In 2004 that number grew to 50 percent. In 2008 it was at 55 percent and in 2011 it was at 54 percent.

She also noted the cautiousness in farmers. "They've been on the roller coaster," Williamson said. "There are a lot of variables with historically high input prices and historically high land prices and rental rates."

Williamson said what surprised her was that farmers 44 and younger seemed to be more pessimistic in the long-term than their older counterparts. She said 39 percent of the younger group said conditions would be worse in the next year, while just 18 percent of older farmers held thumbs down on the next 12 months.

"I find that interesting because the older farmers went through the '80s and '90s and have seen some good times."

Kirk Leeds, chief executive officer for the Iowa Soybean Association, said farmers are "always slow at accepting good news. They appreciate what they've got, but always wait for the next shoe to drop.

"We all know that this market will come down, just how far is the big question. I don't believe it will come down to the pre-global rally.

"But what keeps farmers awake at night are land costs."

In all the surveys DTN/The Progressive Farmer has done, this is a consistent pattern.

"The main issue seems to be with input price expectations," Hill said, "in that farmers are expecting to get hammered with input price increases versus last year. So next year they are expecting a profit squeeze from inputs.

"Couple this with the way commodity prices have been sliding and these producers are seeing some dark clouds on the horizon."

Smith said a few of the survey responded were recontacted to get a reason for more negative responses. She said surveyors found farmers were negative since adverse weather caused their plans to fall short of goals, as well as some who didn't get inputs purchased soon enough and found growing the 2011 crop more expensive than they planned.

Smith's report quoted L.H. Birchmeier, of Mitchellville, saying, "I fear the next 12 months could be a lot more on the downside than the upside. The prices we receive could be dropping. Input costs are getting expensive and once they rise, they seldom come down again.

"Weather will probably not be a big factor. Where we are in Iowa, we seldom have a complete disaster."

Inputs also may account for the reason that larger farmers are somewhat more negative.

While the survey doesn't report breakouts by income, it does indicate less optimism on the part of large producers.

"It could be these more aggressive operators (in November) already are negotiating inputs for next year and are experiencing increases," said Hill.

"They also are more likely to rent a larger share of their acreage and see rents going up. Both of these factors spell narrower margins."